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Duluth may raise levy, draw on reserves

A budget proposal to be considered by the Duluth City Council on Monday would increase local property taxes and draw down more than $1.6 million in reserves.

Mayor Emily Larson proposes to increase the city levy by 5.7 percent overall. For the owner of an average-priced $177,000 home, the impact would be a $30 increase from $661 this year to $691 in 2018.

Larson's budget includes about $2 million in cuts and an additional $1 million in funding for street improvements. But two amendments have been offered to redirect some of that money without increasing the total levy:

• Councilor Zack Filipovich proposes $900,000 for streets and another $100,000 to retain record-keeping positions in the police department.

Despite the tax bump, Larson said she expects the city to dip into its savings account next year. She proposes that Duluth use $895,500 from reserves to invest in a community solar garden, which is projected to save Duluth $2 million in energy costs over the next 25 years.

She also aims to draw $730,500 from reserves to cover anticipated overtime costs in the Duluth Fire Department related to pending military deployments in 2018.

To ease the overtime hardship, Sen. Erik Simonson, DFL-Duluth, a former assistant fire chief, said he will continue to push for his colleagues in St. Paul to help local governments bear the cost of covering for firefighters called away for military service.

Toward that end, Simonson introduced a bill a few years ago seeking to make affected cities financially whole through a state reimbursement.

"I think there's a growing recognition that something needs to be done, and waiting for something to happen at the federal level is not realistic. So we're going to pursue that again in 2018," he said.

Simonson said overtime expenses are virtually unavoidable when a fire department like Duluth's loses a large number of firefighters to military deployments.

"When you have a department that has a minimum staffing number, you can incur a fair amount of overtime in a short period of time. And you don't want to discourage people from being part of the military, obviously," he said.

Duluth Fire Chief Dennis Edwards noted that people with military backgrounds often make excellent firefighters. At present, Duluth has 16 active National Guard members on its firefighting roster, as compared with six just 10 years ago.

Role of reserves

Wayne Parson, Duluth's chief financial officer, said he expects the city to end 2017 with nearly $13.4 million in reserves. The $1.6 million Larson proposes to draw from reserves would reduce that sum by about 12 percent.

As a general rule, Parson said the city seeks to maintain a reserve equal to at least 10 percent of its total general fund spending. With a general fund budget of $85.9 million proposed in 2018, that reserve threshold would be about $8.6 million next year.

"We exceed that, and we will still exceed it, even after dipping into it for the $1.6 million," he said.

Parson said it's important for the city to maintain a healthy reserve to cover unanticipated costs.

"For example, back in 2008-2009, when we had the Great Recession and all of a sudden the state kind of pulled the rug out from under us in the last month of the year, saying: 'You're not going to get your LGA (Local Government Aid) payment. We're going to cut it short.' So it's those unexpected types of situations like that, where we need to have a buffer to be able to maintain our operations until we can figure out a new game plan to address whatever has been thrown our way," he said.

Parson also pointed to the 2012 flood and the recent October windstorm as examples of events that deliver an economic blow to the city, often prompting it to draw from its reserves.

Reserves also go into consideration when the city is assigned a bond rating. Currently, Duluth has been classified as AA-stable — a rating that typically allows the city to finance projects on competitive terms.